Question

Other things the same, if the exchange rate changes from 30 Thai bhat per dollar to 25 Thai bhat per dollar, then the dollar has

A. appreciated and so buys fewer Thai goods.

B. depreciated and so buys more Thai goods.

C. appreciated and so buys more Thai goods.

D. depreciated and so buys fewer Thai goods.

Answer 1

Correct option (D).

Initial exchange rate of 30 Baht per dollar means 1 dollar could buy 30 Baht in forex market, but new exchange rate of 25 Baht per dollar means 1 dollar can now buy 25 baht in forex market. So, value of dollar is lower, so dollar has depreciated and can buy fewer Thai goods.